Sales Rise From Rs 156 Crore To Rs 179 Crore
Omax Autos Ltd. reported healthy growth in net sales at Rs.179.40 Crore in Q3FY07 when compared to Rs.156.49 crore achieved during the corresponding quarter last year, growing by 14.6 percent. The Company posted a growth of 6.4 percent from Rs.168.61 crore reported in Q2FY07. The performance has been boosted by improvement in exports.

Total expenses were at Rs.160.94 crore in Q3FY07, while the total expenses as a proportion of net sales was 89.7 percent in Q3FY07 and 90.2 percent in Q2FY07. Raw Material Expenses were at Rs.123.37 crore in Q3FY07, while raw material expenses as a proportion of net sales was 68.8 percent in Q3FY07 and 70.5 percent in Q2FY07. Raw Materials constituted 76.66 percent of the total expenses.

53 Percent Increase In PBDIT
Profit before depreciation, interest & tax (PBDIT) posted an impressive growth of 53.2 percent to Rs.21.18 crore when compared to Rs.13.83 crore reported in Q3FY06. Quarter on Quarter PBDIT growth was healthy 15.8 percent from Rs.18.29 crore registered in Q2FY07. Other income was higher t Rs.2.72 crore in Q3FY07 from Rs.1.73 crore reported in the previous quarter. PBDIT as a proportion of net sales was 11.8 percent in Q3FY07 when compared to 8.8 percent during the corresponding quarter last year and 10.9 percent during the previous quarter.

PAT Grows From Rs 5.02 Crore to Rs 6.66 Crore
PAT posted an impressive growth of 32.7 percent to Rs.6.66 crore when compared to Rs.5.02 crore reported in Q3FY06. Quarter on Quarter PAT growth was healthy 17.7 percent from Rs.5.66 crore registered in Q2FY07. PAT grew due to lower interest payout at Rs.5.25 crore in Q3FY07 from Rs.4.09 crore reported in the previous quarter. PAT as a proportion of net sales was 3.7 percent in Q3FY07 when compared to 3.2 percent during the corresponding quarter last year and 3.4 percent during the previous quarter. EPS amounted to Rs 3.11 compared to Rs 2.35 in Q3FY06.

Outlook & Valuation

Steel Plant
To take care of increasing raw material cost, Omax Autos is resorting to backward integration by establishing a mini steel facility. The facility has been established through Omax Steels, company’s subsidiary. This is expected to result in cost control and increased efficiency of the company.

MoU with Iranian Company
Omax Autos has turned to middle east for further growth. The company has joined hands with PSP Co. of Iran by signing an MoU for the establishment of two joint venture companies wherein Iran will play host to one company and the other will be set up in India. The JV will scout for opportunities in auto parts space in both the countries. The JV will initially look for making seat recliner and seat base and over a period of time produce seat frames for the car sector in Iran. Modalities of the project are yet to be worked out.

Lucknow Plant
Omax is now singing the Tata tune. The company is in the process of setting up a facility in Lucknow to cater to the exclusive needs of Tata group. The company has been allotted 20 acres of land for the purpose. It will establish a chassis making facility in the allotted area. The unit will cater to heavy, light and medium commercial vehicle segments. The capacity is expected to be around one lakh chassis per year. Estimated to cost Rs 100 crore, the project will be implemented in two phases. The company will invest close to Rs 50 crore to make 50,000 chassis in the first phase. The project is likely to be ready by the first quarter of 2008.

PC Prowess
Finance Minister Mr. P Chidambaram has resorted to a balanced approach in the 2007 budget. He has tried to remove the so-called urban bias by focusing on the rural economy. This year he has adopted neutral stand on the industry as he believes that industrial sector has achieved the momentum to carry on its own without the explicit support of the government.

However, there are some proposals present in the budget which are meant for the benefit of the industrial sector. Even though nothing direct has been done to benefit the auto sector, measures like CST phasing out and being replaced by GST in about 3 years time (2010) will help the industry. As a step towards that direction, CST has been cut from 4 percent to 3 percent. The budget has been helpful on the customs duty front as it has reduced peak customs duty from 12.5 percent to 10 percent. The sector can also benefit from the levy of export duty on iron ore which will have favorable effect on steel, a key input.

But no budget goes without its share of brickbats and side effects. Enhancing the rate of education cess by 1 percent and hike in dividend distribution tax from 12.5 percent to 15 percent will have their own effect on the company since they result in higher outgo of tax.

Valuation
Omax is expecting a topline of around Rs 700 crore in 2006-07 fiscal. For 2007-08, it is anticipated to reach about Rs 800 crore. In another 4-5 years, the sales is projected to cross Rs 1400 crore. Contribution from four wheelers is envisioned to increase from 15 percent to 35 percent and the rest will come from two wheelers. Export orders of more than Rs 140 crore are on hand. Exports have been on an increasing trend and are projected to contribute around 10 percent to the turnover in the near future. The company supplies to leading overseas companies like Supersporx, Cummins, Delphi, Piaggio, Tenneco, Lkea etc. The share of Hero Honda will be 50 percent and Tata will bring in more than 15 percent. Others will chip in with 15 percent of sales. Margins are projected to improve because of cost cutting measures undertaken. Backward integration, Iran proposals, Lucknow facility and cost reduction initiatives put the company in right perspective.

In terms of P/E, the stock is currently trading at 7.43x the FY07E EPS of Rs.12.32 and 4.71x its FY08E EPS of Rs.19.45. The stock is currently trading at an EV/ EBIDTA of 7.27x FY07E earnings and 7.10x FY08E earnings. The stock has been historically trading at a P/E of 9.69x its one-year forward earnings. We rate the stock to BUY with a FY08E price target of Rs.136 at a P/E of 7x FY08E earnings. The company has also been paying dividend, with a yield of 2.18%.

 

Omax has not lived upto the expectation as it has evidenced 40 percent shaving in share price in the last one year as against the BSE Sensex which has moved up by 45 percent and BSE Auto Index which has gone up by a quarter.